GOP in the hot seat

WASHINGTON -- The payroll tax cut that is the largest single element of President Barack Obama's new jobs plan has quickly created a political problem for congressional Republicans, who find themselves divided about how to respond.

Republicans love tax breaks and consider them a fundamental pillar of their philosophy, but conservatives never much liked the one-year payroll tax holiday for employees when it was enacted in 2010.

At the time, the cut in payroll taxes was part of a deal to extend the tax breaks for the wealthy first approved under President George W. Bush. It was added to lure Democrats' votes, but conservatives argued it would cost more than it is worth.

Now, with Obama proposing not only to extend the average $1,000 payroll tax break for another year, but also to increase it by more than 50 percent, many conservative Republicans are promising to resist. They say the $175 billion cost of the tax cut would unnecessarily expand the federal debt, and they are skeptical of administration claims -- backed by many private economists -- that the move would increase jobs.

House Speaker John A. Boehner, R-Ohio, and Majority Leader Eric Cantor, R-Va., by contrast, have begun to open the door to compromise with Obama on the issue. Republican leaders fear the political consequences if the GOP comes to be seen as supporting tax breaks for everyone except average workers.

Obama is doing his best to stoke that worry. A day after he unveiled his jobs package in a speech to Congress, the President went on the road Friday, traveling to Cantor's home turf in Richmond, Va., to urge voters to build grass-roots momentum behind his $447 billion proposal.

Speaking before a friendly crowd in the University of Richmond's basketball arena, Obama challenged Republicans to "prove you will fight as hard for tax cuts for workers and middle-class people as you do for oil companies and rich folks."

Because the payroll tax holiday expires at the end of the year, it has a potent political force. If Congress does not extend the cut, virtually all workers will see a tax increase come Jan. 1 that would average $1,000.

"Pretty hard for Republicans to vote against that," said veteran Republican Rep. Mike Simpson of Idaho. "At this time, do you really want to raise taxes?"

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But not all tax breaks are created equal. Many Republicans would prefer to lower taxes on corporations, cut capital gains taxes or reduce income tax rates for individuals. Cutting tax rates in those ways, they say, would spur more economic growth.

The White House estimates that 160 million working Americans would see the administration's tax break in their paychecks next year. The current credit provides a 2 percentage point reduction on Social Security taxes, which workers pay on income up to $106,800.

Obama proposes to increase the tax break to 3.1 percent, which would mean an average tax savings for workers of $1,500 in 2012.

Sen. Scott Brown of Massachusetts, who is up for re-election next fall, was among the few Republicans who stood and applauded when Obama announced the payroll tax plan.

"I'm more dubious today than I was," Sessions said, citing the cost to the Treasury of the tax cut. "The debt is much larger now."

Rep. Pete Sessions of Texas, who heads the House Republican campaign committee, called Obama's plan "a horrible idea." He said GOP candidates will have no difficulty explaining to voters why they want to let the tax break expire.

One of the arguments Republicans make against the tax break is that it drains Social Security revenue at a time when the trust fund is running short. Normally, money from the payroll tax goes to fund Social Security. Under Obama's plan, money would be transferred from the government's general fund to cover the revenue losses to Social Security, but Republicans say that is a dangerous game.

"This is robbing Peter to pay Paul," said Rep. Tom Price, R-Ga., a leading House conservative opposed to continuing the break. "It's a gimmick."

Administration supporters say the best way to shore up Social Security's finances is to improve the economy and get more people working.